IBM reports flat third quarter

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IBM has posted a flat quarterly net profit, weighed down by a
legal settlement, but the world's largest computer company sounded
a confident outlook and its shares rose 2.3 percent
after-hours.

Excluding the costs of the legal settlement, third-quarter
earnings exceeded analysts' estimates. The company also said
full-year earnings would top Wall Street estimates, indicating that
fourth-quarter profit would be better than expected.

Third-quarter net income for the Armonk, New York-based company
rose to $US1.80 billion, or $US1.06 per share, from $US1.79
billion, or $US1.02 per share, a year-earlier.

Net revenue rose 9 percent to $US23.4 billion, squarely in line
with Wall Street forecasts, according to a survey by Reuters
Estimates. Excluding the benefit of the weak dollar, which boosts
the value of overseas sales when they are converted into dollars,
revenue grew 5 percent.

Excluding the pension charges, IBM recorded a third-quarter
operating profit of $US1.17 cents a share.

The forecasts excluded a pre-tax charge of $US320 million, or 11
cents per share, for the partial settlement of employee lawsuits
over efforts by IBM to revise its pension plans in the 1990s.

Analysts, on average, had been looking for operating earnings of
$US1.14 a share, according to Reuters Estimates.

"Last quarter, I told you customer spending was improving,
though not evenly across all segments and regions," he told
investors in a conference call. "In the third quarter, this pattern
of moderate expansion continues, with the Americas and Asia ahead
of Europe."

Loughridge said IBM expected to beat by 7 US cents per share the
Wall Street full-year consensus forecast of $US4.94 per share. The
7 cents improvement includes the 3 US cents per share of profit
upside reported in the third quarter.

IBM shares rose $US1.98 in after-hours trade to $US87.90, after
closing up $US1.07 at $US85.92 on the New York Stock Exchange.

Revenues from its mainstay Global Services business, including
computer maintenance, increased 5 percent, adjusted for currency
translation effects, to $US11.4 billion in the third quarter. IBM
signed nearly $US10 billion in new contracts during the quarter.
Services accounted for 47 percent of total revenue.

The backlog of future services contracts fell to $US110 billion
from $US118 billion in the fourth quarter, which partly reflected
the loss of its marquee customer - J.P. Morgan which backed out of
a seven-year $US5 billion contract signed in late 2002.

However, Loughridge said net profit margins in the services
business rose to 9.5 percent in the third quarter from 9 percent in
the second quarter and would hit 10 percent in the fourth-quarter,
helping bolster earnings.

Hardware revenues from continuing operations rose 9 percent,
adjusting for currency translation, to $US7.5 billion, with strong
growth across all computer lines except for the mid-range iSeries
computer line, which was undergoing a product transition, the
company said.